The cost of living crisis is not confined to the UK – global inflation has hit a 25-year high.
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The good news for British consumers and expats is you are not alone – every leading economy is struggling to cope.
Energy price rises are crippling the US, France, Germany and scores of other countries and escalating food costs, while interest rates hit highs not seen for a decade or more.
The Organisation for Economic Co-Operation and Development (OECD), an international think-tank of 38 countries with developed economies, saw the cost of living leap by an average of 7.2 per cent at the start of the year, compared with 1.6 per cent a year earlier.
War in Ukraine has also stoked the inflationary fire as governments impose restrictions on the Russian economy and attempt to wean themselves off cheap Russian fuel.
Energy Price Rises Stoke Inflation
Sanctions have left oil and gas hungry economies in Europe scrabbling around for new supplies as the price of energy surged by 23.2 per cent in a year in the UK. The outlook is even worse in the US, where energy price increases tipped 27 per cent and in Italy, where they rocketed by almost 40 per cent.
In Britain, Chancellor Rishi Sunak has come under fire from all sides for not doing more to help consumers struggling to make ends meet. And consumers are nervously awaiting another energy bill hike in October after the price cap was lifted by an extra £673 a year in April.
Meanwhile, other governments have taken different approaches to cope with the crisis.
In France, consumers expect to see their energy bills go up by 54 per cent as a price cap is lifted. Most energy companies are passing price increases on to consumers, except state-owned EDF, which is to absorb a £7 billion hit by limiting energy cost increases to 4 per cent.
Oil companies were also ordered to knock a 15 per cent a litre price drop off the cost of fuel at garages.
Governments Offer Cash Help
Germany is offering taxpayers a €300 grant plus extra for children and anyone on benefits. In addition, the government is urging homeowners to replace gas or oil-burning boilers with electric heat pumps in the long term.
Spain, Bulgaria, Italy and Romania have all levied a windfall tax on soaring energy company profits. The taxes are keeping prices down for consumers.
New Zealand has cut fuel duty and launched a program to increase child tax credits.
Ireland is planning a €200 energy rebate for every household, plus other measures, like reducing public transport fares.
In America, inflation is running at the highest rate since 1981, spiralling to 8.5 per cent during the past year.
Why Is The Cost Of Living Rising?
The main factor is the cost of energy because the price of gas, electricity and oil impacts the whole economy.
Food is more expensive because energy costs make the price of processing and transport more.
Oil prices have soared by around 70 per cent in recent months, while gas is up more than a third.
Russia’s invasion of Ukraine has pushed prices even higher due to sanctions by Europe and the US.
Inflation started to rise in 2021 as the COVID pandemic gripped the world. As economies opened after lockdowns, people wanted to buy things, but businesses could not match supply to high demand because of breaks in production.
Prices started to push up and we are where we are today.
How Have Prices Changed Since 2010?
According to Bank of England price data, only four of hundreds of items in the nation’s shopping basket have lost value in the past 12 years.
They are:
- A kilogram of grapes (-2 per cent)
- Perfume or eau de cologne (-4 per cent)
- A kilo of loose, new potatoes (-4 per cent)
- Coach fares (-6 per cent)
The top 10 prices rises are:
- Men’s coats (+106 per cent)
- 1000 litres of delivered heating oil (+96 per cent)
- A kilo of strawberries (+85 per cent)
- A recordable CD (+78 per cent)
- Gas (+75 per cent)
- Charting Bluray DVD (+75 per cent)
- Women’s casual jacket (+73 per cent)
- Fresh cauliflower (+73 per cent)
- Boy’s jeans (+72 per cent)
- 24-hour self-drive car hire (+70 per cent)
Click here for a full list of price rises
How Inflation Is Hurting Consumers
A recent investment platform poll suggests the cost of living crisis has knocked financial plans off course for a third of savers.
Not only are they finding day-to-day bills harder to settle, but they are missing out on financial goals they set years ago.
One in five expect to delay retirement; 4 per cent claim the rising cost of living has stopped them paying off their mortgages as planned; 3 per cent say they can no longer afford to buy a home, and 2 per cent cannot pay down credit card debt.
Myron Jobson, a senior personal finance analyst at Interactive Investor, said: “The spiralling cost of living has forced many consumers to put the champagne on ice after coming tantalisingly close to reaching a financial milestone. Runaway inflation means that consumers face an uphill battle to keep up with day-to-day expenses – let alone to edge closer towards achieving long term financial goals.”
How Inflation Hits You In The Pocket FAQ
What is the inflation rate?
The inflation rate is the speed of rising prices. The current inflation rate for the UK is 7.2 per cent for the year ending March 31, 2022.
How high will inflation go?
The Bank of England forecasts inflation could hit as high as 10 per cent later this year – the highest rate for decades. However, the Bank added that the cost of living should fall quickly to around 2 per cent in 2024-25.
What does inflation mean to my money?
Simply put, rising inflation means the same amount of money will buy less this year than 12 months ago.
What is GDP?
GDP, or gross domestic product, measures the size and health of a country’s economy. The calculation is complicated but involves adding up the total value of goods and services generated in a year, added to everyone’s income. So if GDP rises, the economy is growing.
What can governments do about inflation?
Governments are tackling the cost of living increase in different ways. Some are offering grants and tax breaks, others are putting up interest rates and some are doing nothing. In the end, the crisis is something everyone has to work through because the issue was not triggered by a government policy but a series of unfortunate events.
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